Fitch Ratings has assigned a B+ rating to the new $1.25 billion of senior subordinated notes being sold by Clear Channel Worldwide Holdings, a subsidiary of Clear Channel Outdoor. We would call that a “junk bond, but OK” rating. But, of course, we’re more interested in what Fitch analyst Melissa Link had to say about the impact on parent company Clear Channel Communications.
As previously reported, the proceeds will be paid as a dividend to the shareholders of Clear Channel Outdoor. So 11%, around $137 million (less fees) will go to the public shareholders and 89%, around $1.11 billion (less fees) to Clear Channel Communications, which plans to use it to reduce debt.
“Clear Channel will use the $1.1 billion dividend it receives to permanently repay a portion of the $1.33 billion outstanding under its revolving credit fund (RCF) maturing 2014. Pro forma for the repayment, Fitch estimates approximately $231 million outstanding under the RCF, and $602 million availability (less any letters of credit [LOCs] outstanding). Fitch estimates that the transaction will reduce gross secured leverage at Clear Channel by 0.6x, to 7.3x, from 7.9x at Dec. 31, 2011. Total consolidated leverage (which includes CCWW) will increase 0.1x, to 11.1x,” the analyst wrote.
“The transaction has no impact on Clear Channel’s ratings or recovery analysis, which had previously incorporated maximum debt-funded dividends out of CCOH. Nonetheless, the transaction is a positive for Clear Channel’s near-term liquidity, as it will reduce the 2014 maturity wall to $1.7 billion from $2.8 billion. The ratings had previously incorporated Fitch’s view that the company’s financial flexibility around 2014 maturities had improved over the past year. While a maturity extension on 2014 bank debt will provide the company with increased financial flexibility to deal with subsequent maturities, Fitch believes Clear Channel could likely handle the $2.4 billion of combined legacy notes and bank debt that mature 2012-2014 using a combination of cash swept from CCOH that is held in Clear Channel’s accounts, further dividends from CCOH, and issuance out of Clear Channel,” Link said of the near-term impact.
“That being said, Clear Channel still faces $12.2 billion of debt (primarily bank loans) maturing in 2016. Addressing this will require flexibility on the part of 2016 term-loan holders by way of maturity extension, which Fitch believes will depend on Clear Channel’s ability to reduce secured leverage to a level where lenders would be willing to recommit capital,” she said of the challenges coming in 2016.